JP Morgan Chase 2006 Annual Report Download - page 118

Consumer activities Wholesale activities
December 31, 2006 Residential Residential Commercial
(in millions, except rates and where otherwise noted) Credit card Automobile mortgage mortgage and other
Weighted-average life (in years) 0.4–0.5 1.1 0.2-3.4 1.9–2.5 0.2–5.9
Prepayment rate 17.5–20.4% 1.4% 19.3-41.8% 10.0–42.9% 0.0–50.0%(c)
PPR ABS CPR CPR CPR
Impact of 10% adverse change $ (52) $ (1) $ (4) $ (44) $ (1)
Impact of 20% adverse change (104) (3) (7) (62) (2)
Loss assumption 3.5–4.1% 0.7% 0.0-5.1%(a) 0.1–2.2% 0.0–1.3%
Impact of 10% adverse change $ (87) $ (4) $ (4) $ (45) $ (1)
Impact of 20% adverse change (175) (7) (8) (89) (1)
Discount rate 12.0% 7.6% 8.4–30.0%(b) 16.0-20.0% 0.5–14.0%
Impact of 10% adverse change $ (2) $ (1) $ (3) $ (25) $ (1)
Impact of 20% adverse change (3) (2) (7) (48) (2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JPMorgan Chase & Co.
116 JPMorgan Chase & Co. / 2006 Annual Report
At both December 31, 2006 and 2005, the Firm had, with respect to its
credit card master trusts, $19.3 billion and $24.8 billion, respectively, relat-
ed to undivided interests, and $2.5 billion and $2.2 billion, respectively,
related to subordinated interests in accrued interest and fees on the securi-
tized receivables, net of an allowance for uncollectible amounts. Credit card
securitization trusts require the Firm to maintain a minimum undivided
interest of 4% to 12% of the principal receivables in the trusts. The Firm
maintained an average undivided interest in principal receivables in the
trusts of approximately 21% for 2006 and 23% for 2005.
The Firm also maintains escrow accounts up to predetermined limits for
some credit card and automobile securitizations, to cover the unlikely event
of deficiencies in cash flows owed to investors. The amounts available in
such escrow accounts are recorded in Other assets and, as of December 31,
2006, amounted to $153 million and $56 million for credit card and auto-
mobile securitizations, respectively; as of December 31, 2005, these
amounts were $754 million and $76 million for credit card and automobile
securitizations, respectively.
JPMorgan Chase retains servicing responsibilities for all originated and for
certain purchased residential mortgage, credit card and automobile loan
securitizations and for certain commercial activity securitizations it sponsors,
and receives servicing fees based upon the securitized loan balance plus cer-
tain ancillary fees. The Firm also retains the right to service the residential
mortgage loans it sells in connection with mortgage-backed securities trans-
actions with the Government National Mortgage Association (“GNMA”),
Federal National Mortgage Association (“FNMA”) and Federal Home Loan
Mortgage Corporation (“Freddie Mac”). For a discussion of mortgage servic-
ing rights, see Note 16 on pages 121–122 of this Annual report.
In addition to the amounts reported for securitization activity on the previ-
ous page, the Firm sold residential mortgage loans totaling $53.7 billion,
$52.5 billion and $65.7 billion during 2006, 2005 and 2004, respectively,
primarily as GNMA, FNMA and Freddie Mac mortgage-backed securities;
these sales resulted in pretax gains of $251 million, $293 million and $58
million, respectively.
The table below summarizes other retained securitization interests, which
are primarily subordinated or residual interests, and are carried at fair value
on the Firm’s Consolidated balance sheets:
December 31, (in millions) 2006 2005
Consumer activities
Credit card(a)(b) $ 833 $ 808
Automobile(a)(c) 168 150
Residential mortgage(a) 155 182
Wholesale activities(d)
Residential mortgages 1,032 245
Commercial and other 117 20
Total $ 2,305 $ 1,405
(a) Pretax unrealized gains recorded in Stockholders’ equity that relate to retained securitization
interests on consumer activities totaled $3 million and $6 million for credit card; $4 million
and $5 million for automobile and $51 million and $60 million for residential mortgage at
December 31, 2006 and 2005, respectively.
(b) The credit card retained interest amount noted above includes subordinated securities
retained by the Firm totaling $301 million and $357 million at December 31, 2006 and
2005, respectively, that are classified as AFS securities. The securities are valued using
quoted market prices and therefore are not included in the key economic assumptions and
sensitivities table that follows.
(c) In addition to the automobile retained interest amounts noted above, the Firm also retained
senior securities totaling $188 million and $490 million at December 31, 2006 and 2005,
respectively, that are classified as AFS securities. These securities are valued using quoted
market prices and therefore are not included in the key economic assumption and sensitivi-
ties table that follows.
(d) In addition to the wholesale retained interest amounts noted above, the Firm also retained
subordinated securities totaling $23 million and $51 million at December 31, 2006 and
2005, respectively, predominately from resecuritizations activities that are classified as
Trading assets. These securities are valued using quoted market prices and therefore are
not included in the key assumptions and sensitivities table that follows.
The table below outlines the key economic assumptions used to determine
the fair value of the Firm’s retained interests in its securitizations at December
31, 2006 and 2005, respectively; and it outlines the sensitivities of those fair
values to immediate 10% and 20% adverse changes in those assumptions: